Is The Upcoming U.S. CPI Report Set To Unleash Another Market Turmoil?
The final CPI report before the March policy meeting of the Federal Reserve is scheduled for release on Tuesday at 12:30 GMT.
Anxiety levels are high due to the recent unpleasant data surprises. There are concerns about the possibility of another high inflation report.
Jerome Powell, the head of the Federal Reserve, already suggested the possibility of implementing two consecutive interest rate increases.
The ongoing battle against inflation has both positive and negative developments, the positive being a decrease in inflation rates within the United States.
The bad news is that the decline is not occurring rapidly enough, according to the most recent metrics.
In January, there was a 6.4% year-on-year increase in the consumer price index, which was only 0.1 percentage points lower than in December.
It can be said that the consumer price index saw a slight decline in growth from December to January. But still, it showed a significant increase compared to the same period in the previous year.
Inflations Fears Are Haunting the Market
The core CPI has also recorded a slowed decline. However, the most concerning aspect was the core PCE inflation, which has moved up significantly.
According to the February forecasts, there has been little change in the persistent inflation situation compared to January.
Moreover, the fear that retail sales will stay at minimal backing the inflation claims. It is expected that retail sales have declined by 0.3% on a month-to-month basis in February.
Fed Stay Committed to Interest Rate Hike
Chair Powell warned during his testimony to Congress that it might be necessary to increase rates beyond previous expectations.
As long as there isn’t a significant deviation from expectations on Tuesday, policymakers are unlikely to relax their stance.
This is due to the substantial overachievement of both employment and inflation data. As the Feds are meeting again on March 22nd, they will discuss bout interest rate hike.
As the things stand, increasing the interest rate is less significant. The focus is on high much the interest rate will be increased.
What’s next for Dollar Pull or Gain?
The dollar may experience an increase against a group of currencies, even if the consumer price index (CPI) numbers are in line with expectations.
At present, the dollar index is trading slightly higher than its 50-day moving average, and the moving average itself is ascending toward the 103.50 mark.
If inflation decreases more than expected in February, particularly in certain components of the CPI the dollar will rise higher.
Investors should not anticipate investing in the dollar unless the forthcoming report displays indications of a more accelerated reduction in services inflation.
On the flip side, the unexpected downfall of Silicon Valley Bank (SVB), caused anxiety in both, the money market and the stock market.
The likelihood of the Fed funds rate reaching its highest point at approximately 5.6% before the SVB crisis was observed by the markets.
But this probability has significantly decreased to roughly 5.0%. As the things stand uncertainties are looming around the price of USD in near future.
Moreover, against the basket of six other major currencies, the U.S. dollar saw a decline recently. On the other hand, the EUR/USD pair saw a significant rise in terms of its price.
As the market is moving forward, investors need to look at the upcoming important dates.
Most notably on 22 March when Fed will meet for the final time this month and decide to that how rapidly the interest rates are needed to rise.
The U.S. Federal Reserve Chairman Jerome Powell also said during his speech to U.S. Congress that interest rates need to increase for extended periods.
Any increase in the interest rate will give much-needed momentum to USD. However, the recent employment report has put the pressure on USD price upward momentum.
If the upcoming CPI report showed positive indicators USD can see further pressure in terms of price.